Ever wonder how some people always seem to have money to invest while you’re just scraping by each month? The truth is, investing isn’t some magical skill only available to the wealthy. Anyone can learn how to invest their money for the future. And you don’t need a fancy degree or years of experience to get started. All you need is the willingness to learn a few simple skills and take some calculated risks.
In this guide, you’ll discover how to begin investing your money in the stock market, real estate, and other opportunities. You’ll learn proven strategies to build wealth over time through the power of compound interest. And you’ll see how starting early, even with a small amount of money, can pay off in the long run. By the end of this article, you’ll have the confidence to make your money work for you. So what are you waiting for? It’s time to take control of your financial future and learn how to invest.
Getting Started With Investing as a Beginner
So you want to start investing, but don’t know where to begin. Don’t worry, we’ve got you covered. Here are the basics to get you started:
Finding your risk tolerance
The first thing to determine is how much risk you’re comfortable with. Are you willing to risk losing money for the chance of higher returns? If yes, a more aggressive approach with stocks may be right for you. If not, consider safer options like bonds, CDs or high-yield savings accounts.
Setting financial goals
Do you want to save for retirement, your child’s college or a down payment on a house? Define specific and measurable goals to guide your investment strategy. For long-term goals like retirement, a diversified portfolio of stocks, bonds and cash is a good approach. For short-term goals within 5 years, focus on less volatile investments.
Choosing an investment account
The most common options for beginners are brokerage accounts, retirement accounts like an IRA or 401(k), and saving accounts. Brokerage and retirement accounts allow you to invest in the stock market, while saving accounts provide lower interest rates but more security. You’ll need to open an account with an online broker or robo-advisor to get started.
Starting small and learning as you go
Don’t feel overwhelmed. You don’t need a lot of money to begin, and you can start with small contributions. Focus on educating yourself by reading investing resources. Learn about different asset classes, portfolio strategies, and how to evaluate companies and mutual funds. Over time, you’ll get more comfortable and confident in your investment decisions.
The key is just to begin. Start putting money aside consistently, set a strategy aligned with your goals, and keep learning. With patience and persistence, you’ll be on your way to becoming a seasoned investor.
Understanding Asset Classes: Stocks, Real Estate, and More
Investing your money is one of the smartest things you can do to build wealth over time. But to get started, you need to understand the major asset classes.
Stocks represent ownership in a company. When the company does well, the value of the stock typically goes up. Over the long run, stocks have the potential for high returns. However, the value of stocks can fluctuate greatly. For new investors, a stock index fund is a good place to start. It provides broad market exposure with lower risk.
Real estate investments include residential or commercial property. You can invest directly by purchasing property or indirectly through real estate investment trusts (REITs). Real estate provides income through rent and the potential for gains if property values rise. However, real estate is illiquid, meaning it may take time to sell.
Cash equivalents like savings accounts, CDs, and money market funds provide stability but typically the lowest returns. The principal value does not fluctuate much, but returns barely keep up with inflation. However, cash provides liquidity when you need access to your money.
With the major asset classes covered, you now have a good foundation to build a diversified investment portfolio based on your financial goals and risk tolerance. The key is to invest regularly over time through ups and downs in the market. If you do, you’ll be on your way to financial success.
Choosing the Right Investment Account and Platform
Choosing how and where to invest your money is an important decision. The investment account and platform you select will impact your fees, available investment options, and overall experience.
For most beginners, a standard brokerage account is a great place to start. These accounts allow you to invest in stocks, bonds, ETFs, and other securities. Major brokerages like Fidelity, TD Ameritrade, and E*Trade offer $0 commission trades and easy-to-use platforms.
With a brokerage account, you’re in full control of your investment decisions. You can buy and sell securities yourself at any time. However, you’ll typically pay higher fees than other options. Brokerages charge small fees for trades and account maintenance. They also often have account minimums, like $500 to get started.
Robo-advisors are automated investment platforms that build and manage portfolios for you based on your financial goals. Companies like Betterment, Wealthfront, and Ellevest use computer algorithms to invest your money in low-cost ETFs and index funds based on your risk tolerance.
Robo-advisors are very hands-off. You only need to set up your account, fund it, and check in periodically. Fees are often lower than brokerages since the advising is automated. Most robos have no account minimums so you can get started with whatever amount you have. However, you have limited control over investment decisions and less flexibility. Your money is locked into the robo’s portfolio approach.
In the end, you need to weigh the pros and cons of brokerages versus robos and see what aligns with your needs and skills as an investor. The most important first step is simply getting started. Open an account, fund it, and start putting your money to work for you as soon as you’re able. You can always change platforms later as your needs evolve. The key is taking that initial plunge into the world of investing.
Building a Balanced Investment Portfolio
Building a balanced investment portfolio is key to successful long-term investing. The three main types of investments to consider are:
Stocks represent shares of ownership in a company. They have the potential for solid returns over time through price appreciation and dividends but also have the highest risk. Aim for a mix of small, mid, and large companies across different industries.
Bonds are essentially loans you make to governments, companies, or other entities. They provide fixed interest payments over time. Bonds are more stable but typically have lower returns than stocks. Government bonds like T-bills are very low risk, while corporate bonds have higher yields but more risk.
Cash includes money in savings accounts, CDs, and money market funds. It provides stability but little opportunity for meaningful growth due to low interest rates. Keep enough cash on hand for emergencies and short-term needs, but don’t let too much cash sit idle for long periods.
A good starter portfolio could be:
- 50-70% in stocks – Mix of U.S. and international, large and small companies, growth and value stocks.
- 20-40% in bonds – Mix of government and corporate bonds with varying maturities.
- 5-10% in cash – In a high-yield savings account for easy access.
Rebalance your portfolio annually by selling positions that have become overweighted and buying more of underweighted assets. Make regular contributions to your investments through a workplace retirement plan like a 401(k) and/or an IRA to take advantage of compounding returns over time. Review and rebalance your portfolio at least once a year to maintain your target allocations as the market changes.
With a well-diversified and balanced portfolio, you’ll be in a great position to achieve solid long-term returns while managing risk. But as with many things, moderation and consistency is key. Don’t go chasing the latest fad or make reactive changes based on short-term events. Stay invested for the long haul.
Top Tips for Long-Term Investing Success
To be a successful long-term investor, keep these top tips in mind:
The sooner you start investing, the more time your money has to grow. Even small amounts can add up to a lot over decades of investing. If you begin in your 20s, for example, just $50 a month could grow to over $150,000 by retirement age.
Develop the habit of automatically contributing to your investment accounts each month. Set up automatic transfers from your checking account if possible. Regular investing helps you buy more shares when prices are low and less when they’re high. This strategy, known as dollar-cost averaging, can help you achieve solid returns over time.
Keep fees low
The fees you pay for investing—like expense ratios on funds or commissions on trades—reduce your returns. Look for low-cost or no-fee options like index funds and ETFs. Over decades of investing, even small percentage differences in fees can add up to tens of thousands of dollars.
Review and rebalance periodically
Check in on your investment accounts at least once a year to make sure your money is allocated properly between stocks, bonds, and cash based on your financial goals. Rebalance as needed by selling holdings that are overweighted and buying those that are underweighted. This helps ensure your portfolio does not take on too much risk.
One of the biggest mistakes new investors make is pulling money out when the market drops. Stay invested for the long run to achieve the best returns. While the value of your holdings may decline in the short term, over longer periods the stock market has always recovered losses and gone on to new highs. Have patience and stick with your investment plan.
Following these tried-and-true principles will set you up for investment success over the long run. Stay disciplined, start early, keep at it regularly, minimize fees, review periodically, and remain invested for the best chance at solid returns.
So there you have it, a beginner’s guide to getting started with investing. Don’t feel overwhelmed by all the options and terminology. Start with the basics, open a brokerage account, fund it, and buy a few shares of stock in a company you believe in. Watch how the value changes over time and learn from your experiences. Investing is a lifelong skill, so take your time and enjoy the learning process. Even small amounts can add up to big returns over the long run. The most important thing is just getting started. You’ve got this! Now go pick some stocks, bonds or ETFs and start building your wealth. The key is to start small, keep learning, and stay invested for the long haul. You’ll be well on your way to becoming an investing pro in no time.